BLOG:  Digital Financial Reporting

This is a blog for information relating to digital financial reporting.  It is for innovators and early adopters who are ushering in a new era of digital financial reporting.

Much of the information contained in this blog is summarized, condensed, better organized and articulated in my book XBRL for Dummies and in the three documents on this digital financial reporting page.

Disclosure Analysis Prototype

I created a disclosure analysis prototype.  This analysis tool prototype looks at the current inventory components roll up.  It compares the Level 3 Disclosure Text Block representation and the Level 4 Disclosure Detail representation.  You can see and compare the text block and the detail side-by-side.

The rules for the disclosure are useful not only for verifying that disclosures were created correctly, but also for querying information from reports.  I realize this prototype needs more work to make it more useful, I am just trying to get all the basic pieces of the puzzle working.

Currently, the working prototype has information for the S&P 500 companies from their 2016 form 10-K.  All of the information and renderings are provided to me by the XBRL Cloud Edgar Report Information Web Service API.  With permission, I created copies of the renderings, stripped out the detail that you can normally drill down to (you have to subscribe to XBRL Cloud to get that functionality), and use that information to provide the comparisons.

Additionally, you can navigate to the publicly available XBRL Cloud viewer to look at details.  I also link you to the SEC Filing Page of the XBRL-based financial report submission so you can go look at that.

Here are some observations that I have. Of the 500 companies analyzed:

  • 158 companies provide both the Level 3 Disclosure Text Block and Level 4 Disclosure Detail that I would have expected.
  • 189 companies do not provide EITHER the Level 3 Disclosure Text Block OR the Level 4 Disclosure Detail; basically they don't have inventory.
  • 15 companies report the details of components of inventory directly on their balance sheet and therefore per SEC filing rules they are not required to provide the Level 3 Disclosure Text Block
  • 26 companies reported the Level 3 Disclosure Text Block, but I did not find the Level 4 Disclosure Detail.
  • 37 companies reported the Level 4 Disclosure Detail, but I did not find the Level 3 Disclosure Text Block and the company did NOT report the detail in the balance sheet.

What about the other 75?  Well, I am figuring that out.

Here are some specific observations:

  • FLOWSERVE CORP made the mistake of combining the representation of two disclosures into one making the Level 4 Disclosure harder to read.
  • RAYTHEON added an Axis to the facts and then assigned each of the inventory component facts to that Axis, which achieves nothing.
  • Advanced Auto Parts put the inventory components roll up together with the valuation allowance roll forward, making the Level 4 Disclosure Detail harder to read.
  • Allegion plc combined multiple disclosures into their Level 4 Disclosure Detail representation making the representation virtually impossible to comprehend.
  • ANADAKRO PETROLEUM CORP used the general Level 3 Disclosure Text Block, but then used a specialized concept for the total of the inventory components roll forward.
  • DOW CHEMICAL CO created Level 4 Disclosure Detail presentation relations that do not match the Level 3 Disclosure Text Block and they appear to have not created any XBRL calculation relations.
  • Honeywell International uses an different approach to representing the subtotal before the LIFO reserve.  Honeywell uses us-gaap:InventoryGross as the subtotalFMC Technoligies INC uses the same us-gaap:InventoryGross concept, but they use a different LIFO and valuation adjustment concept. FORD uses a different concept than Honeywell.  Dr Pepper Snapple Group, Inc. uses a different concept than Honeywell. DUPONT uses a different concept than Honeywell.  (Huh, I am not sure if these companies are making different disclosures or are providing the same disclosure using inconsistent approaches. More investigation is necessary.)

Anyway, I will leave it at that for the time being.  Interesting stuff.  This would be a great resource for teaching intermediate accounting.

If you have any ideas that would help turn this into a useful tool, be sure to send them my way.

Posted on Thursday, August 3, 2017 at 10:52AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Process Robotics is Disrupting Accounting and Finance

In this video, Finance in a Digital World and the Impact on CFOs, John Steel who leads the finance transformation practice of Deloitte makes the statement,

"Five years from now there is either no CFO or the CFO is playing a different role."

John's view is consistent with what the AICPA and Journal of Accountancy are saying which is that technology is poised to change the accounting profession.

In the video, John goes on to say, "Digital is having a tremendous impact and it's quite disruptive."  In the video he goes over trends that are occurring.  One of those trends is process robotics.  John uses the term "lights out finance" meaning a finance that is completely automated.  Now, we may never get to where the lights are completely out, but digital will involve automation of many existing manual processes.

First, if you don't understand what digital means, please read this document: Getting Ready for the Digital Age of Accounting, Reporting, and Auditing: a Guide for Professional Accountants.  That document will help you dial in your perspective.

A key word here is "disruptive".  As pointed out by The Innovators Dilemma, there are two types of innovation: sustaining and disruptive.  Sustaining innovation meets customer's current needs, making incremental improvements in quality and efficiency of current processes. Disruptive innovation is about meeting future needs of customers.

Process robotics is about automating accounting, clerical, administrative, and other such tasks using software robots.  Artificial intelligence technology drives these software robots.  It really is a lot like how physical robots were employed to replace humans in manufacturing processes such as the process of building cars.  Software robots cannot automate all tasks.

And this is not about robots taking over the world.  The way it will work is that you will have humans augmented by machine capabilities, much like an electronic calculator enabling a human to do math quicker, will empower professional accountants and others who know how to leverage those machines.

Much like how CAD/CAM and BIM automated the process of creating blue prints and other tasks involved in the design, engineering, and construction of things; process robotics driven by artificial intelligence will automate processes such as the process of creating financial reports.

I know this can be hard to believe, but go watch that short video about The Innovators Dilemma to understand how this will all unfold.

Posted on Thursday, July 27, 2017 at 07:51AM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

CPAs Should be Active Participants, not Passive Bystanders, in Creating Digital Financial Reporting

Any significant change is hard. However, success is the most likely outcome for XBRL-based digital financial reporting.  While change does require effort, the majority of people committed to change do tend to succeed.

Certified Public Accountants should be active participants in the process of creating digital financial reporting, not passive bystanders.

But to participate, you need to get the proper background information.  If you don't, then there is a very high probability that you might not understand the change.

One big area of confusion relates to how XBRL-based financial reports will be audited.  Here is a summary of my thoughts related to auditing the meaning being conveyed by XBRL-based digital financial reports.  Make no mistake: ultimately, XBRL-based information will be audited.

I updated the documents Digitizing Financial Reports and Overview of Professional Accountant's Interests, Perspective, Position, and Risks.  The document can be very helpful in getting professional accountants to understand why they should be participating in and shaping the change to digital.  The documents help professional accountants understand and think about important issues related to going digital.

Posted on Friday, July 21, 2017 at 03:02PM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint

Understanding How XBRL Works Using Excel

I created a video, How XBRL Works, which seems to be pretty popular for people who want to understand how XBRL works.  (The video has over 50,000 views; about 463 views per month.)

But while I explain how it works, you don't actually get your hands dirty and use XBRL, seeing for yourself how it actually works.

Well, here is something else that helps you understand how XBRL works using Excel.  The link is to a ZIP archive which contains an Excel spreadsheet.  The spreadsheet has some very straight forward macros.  What the macros do is extract information from the XBRL-based 10-Ks of 464 public companies that use interest-based revenues to report their financial information (i.e. banks).

To run the VBA code in the spreadsheet, all you need to do is click the one button in the upper left hand corner of the spreadsheet.  You do need to have Microsoft Internet Explorer installed on your computer, the VBA code uses the Microsoft XML parser to extract information from the XBRL-based reports.

There is a great deal one can learn from reverse-engineering the VBA code.  Also, if you notice the results of the information extracted and you ask yourself, "Why do some financial reports contain errors and others do not contain errors," you can learn even more.

If you are a CPA that understands how to write Excel VBA and you want to learn more about XBRL contact me.  I am always looking for people to collaborate with to create interesting software. Experimentation is a great way to get ready for the digital age of accounting, reporting, and auditing.

 

Posted on Friday, July 21, 2017 at 09:08AM by Registered CommenterCharlie | CommentsPost a Comment | EmailEmail | PrintPrint

Updated Conceptual Model of an XBRL-based Digital Financial Report

I have updated my description of the high-level conceptual model of an XBRL-based digital financial report.  You can get this updated information here, Introduction to Conceptual Model of a Digital Financial Report.

Why should you care about understanding this high-level conceptual model?  Anyone can create something that is complicated.  It takes hard work to create something that is simple.  The conceptual model makes things simpler.

If this higher-level conceptual model is implemented in software applications, it makes it possible to make software far more approachable by business professionals.  Not using some high-level conceptual model leads to hard to use software, less functional software, and less elegant software.

You don't have to use my conceptual model: if you don't like mine, create your own.

Ready for more detail?  Read PART 2 of Intelligent XBRL-based Digital Financial Reporting.  Really want to start getting your hands dirty? Here is the next layer of the conceptual model.

Why should you even care?  Because accounting, reporting, and auditing are going digital.

Posted on Thursday, July 20, 2017 at 03:53PM by Registered CommenterCharlie in | CommentsPost a Comment | EmailEmail | PrintPrint